This is all part of the administration's attempt to jump start the floundering loan modification program. Yesterday, I laid out just how amped up White House pressure could come to no good. Today, we are getting a preview of how some of that pressure will be applied.
Assistant Treasury Secretary Michael Barr told reporters that the department will be sending “SWAT teams” into the companies and requiring regular check-ins on their progress.
The administration is about to send an unmistakeable message to banks: approve these en masse or else. I can't think of another time where an administration has so openly made demands of private business on their product mix.
There is absolutely nothing that says that banks have to approve loan modifications let alone a lot of loan modifications. Yet, the White House is demanding this of banks. They are going to send in monitors and they are going to tell the banks that they have no option but to approve them en masse. The White House is threatening to publish non compliant banks and post them on the web in an effort to shame them into approving more modifications.
We are headed toward loan modification disaster. It's a road filled with fraud, moral hazards and ultimately it will bring significant damage to our economy.